Rubber Prices Drops as European Debt Concerns Trigger Industrial Commodity Sales

Rubber prices dropped from a five-month high as concern grew that European government finances may be worsening, leading to sales of industrial commodities.

The most-active contract dropped 0.4 percent to 307.9 yen per kilogram ($3,656 a metric ton) before settling at 308.5 yen on the Tokyo Commodity Exchange. The contract touched 312.8 yen yesterday, the highest since April 28.

Asian stocks declined today as yield spreads showed perceptions of Ireland and Portugal?s creditworthiness are deteriorating. Oil and base metals also dropped.

?Rubber tracked losses in equities and other industrial commodities,? Takaki Shigemoto, an analyst at JSC Corp. in Tokyo, said by phone. ?Risk aversion by investors increased amid renewed concern over the European debt issue.?

The MSCI Asia Pacific Index lost 0.7 percent to 126.21 at 4:56 p.m. Tokyo time. Irish bond yields rose to a record against German bunds yesterday and Portugal?s borrowing costs also increased as the countries struggled to rein in their budget deficits. The spread between Irish and German 10-year government bond yields widened to 434 basis points today.

?Concerns about the global economic outlook haven?t cleared,? said Yasushi Noguchi, a strategist at SMBC Friend Securities Co. in Tokyo. ?There are still issues related to Europe?s debt.?

Losses in rubber futures were limited as cash prices increased amid expectations that supplies may remain tight, said JSC?s Shigemoto.

Largest Exporter

Shippers in Thailand, the world?s largest exporter, offered so-called RSS-3 grade rubber for November at $3.59 a kilogram, up from $3.52 at the end of last week, he said.

?Demand from tire makers was strong, while supply was curbed by wet weather,? Shigemoto said.

Natural-rubber supply will be curbed next year as yields from aging trees decline and output growth slows, according to the Association of Natural Rubber Producing Countries. Thailand, Indonesia and Malaysia are the three biggest producers.

?While supply remains tight throughout this year, the possibility of change is remote in 2011,? Jom Jacob, the group?s senior economist, said in a statement earlier this month. The market remains ?bullish? as rains disrupt supply from Thailand and Indonesia, the group said.

The March-delivery contract on the Shanghai Futures Exchange climbed 0.4 percent to 26,685 yuan ($3,987) a ton.